Will the US tighten a cordon around AI chips?
Shares in high-flying chipmakers like Nvidia and AMD fell in premarket trading today, after The Wall Street Journal reported that the Biden administration is considering new restrictions on the export of artificial intelligence-related semiconductors to China.
The deliberations underline the White House’s concerns about falling behind in the race to dominate AI and the potential for Beijing to use the technology in military applications — and show that it is willing to tighten the screws on trade to to stay ahead.
Such a move would curb sales of some lower-end AI chips, after the Biden administration restricted exports of the most advanced semiconductors last year, according to The Journal. That would include Nvidia’s A800 chips, which the company made specifically to comply with previous Department of Commerce restrictions regarding computing performance. Those chips may now need a license to be sold to Chinese companies.
The report knocks stocks of companies that would be affected, though a final decision is not likely until next month, after Treasury Secretary Janet Yellen returns from a trip to Beijing. Shares in Nvidia, which more than doubled this year on investor enthusiasm around AI, fell more than 3.1 percent as of 7 a.m., according to the report, while AMD shares fell 3.5 percent.
Shares of Chinese technology companies also took a hit: Chengdu Information Technology of the Chinese Academy of Sciences fell almost 12 percent today, while Inspur Electronic Information Industry fell 10 percent.
The aim is to hinder China’s AI progress in the name of national security. The White House has repeatedly said it views AI as a critical technology for applications ranging from military weapons to cybersecurity, and has asked allies, including Japan and the Netherlands, to limit exports to Beijing as well.
That has put corporate leaders in the difficult position of supporting efforts to protect American interests while defending their companies. (Nvidia, for example, gets about 20 percent of its revenue from China.) “I can’t stress this enough: If we treat every economic interaction as a risk, we lose focus on those who really pose a threat,” Suzanne Clark, the president of the U.S. Chamber of Commerce, said in a speech last month.
It is unclear how Beijing will respond, but the prospect of further escalation in the US-China trade war is real. Last month, the Chinese government blocked domestic companies processing critical information from buying chips from Micron, citing “relatively serious cybersecurity concerns.”
In other U.S.-China news, a senior Biden administration official expressed concern to Sequoia last year about investments by the venture capital firm’s China arm in local start-ups that could pose national security risks, according to The Journal. This month, Sequoia unveiled a plan to break down its Chinese and Indian investment arms.
HERE’S WHAT HAPPENING
Federal investigators blame prison mismanagement for Jeffrey Epstein’s death. A Justice Department investigation found that extreme negligence and misconduct at a now-closed Manhattan jail caused the convicted sex offender and disgraced financier to commit suicide. The report found no evidence to contradict previous conclusions that Epstein committed suicide.
UBS would plan broad layoffs at Credit Suisse. Starting next month, the Swiss bank is expected to cut more than half of its former rival’s 45,000 employees, according to Bloomberg. UBS closed its government-brokered deal to buy Credit Suisse this month, and a culling would be part of the surviving bank’s effort to shed some $6 billion in fees.
Fidelity is reportedly planning to unveil a Bitcoin ETF The asset management titan is expected to file for approval for a spot Bitcoin exchange-traded fund, according to The Block. That would make it the latest Wall Street giant to push for a mainstream fund built around cryptocurrency in hopes that the SEC will finally approve such efforts.
A Russian general had foreknowledge of Yevgeny Prigozhin’s uprising plans. US intelligence is still trying to determine whether General Sergei Surovikin, the former top Russian commander in Ukraine, helped the leader of the Wagner Group plan his armed uprising.
US regulators are going to tighten scrutiny on deals. Antitrust authorities have suggested seeking much more information from companies planning a merger, disclosing grants received from some governments, including China, Iran and Russia. The potential new rules, if passed, could delay deal completion by several months and lead to more paperwork.
Inflation clouds loom over central bankers
Investors on both sides of the Atlantic will tune in today at 8:30 a.m. Eastern time for the main event of the European Central Bank’s summer confab in Portugal: a discussion between ECB President Christine Lagarde; Fed Chairman Jay Powell; Andrew Bailey, Governor of the Bank of England; and Kazuo Ueda of the Bank of Japan.
The world’s top monetary policymakers have descended on the hilltop resort town of Sintra at a difficult time for the global economy as a cost-of-living crisis grips North America, Europe and beyond.
The big question: Can central bankers pull their economies out of a protracted recession, even if they step up their fight against inflation?
Analysts are divided. Yesterday, HSBC predicted that the United States would enter a recession in the fourth quarter, followed by Europe next year. Goldman Sachs economists estimate the probability of a recession in the US at a more favorable 35 percent, but see a “difficult road” for the Fed to avoid a so-called hard landing.
Most panellists have pursued aggressive interest rate policies. Together, they have raised interest rates 31 times since December 2021. The Bank of England leads the pack with 13 increases (which have had little impact on inflation), followed by the Fed (10), the ECB (eight) and Japan (zero – low inflation continues in Japan and the central bank has not touched interest since 2016).
More increases are on the way in the US, Europe and Britain. The futures market is pricing in at least one more Fed hike this year, likely at its July meeting. Markets believe that the ECB and the Bank of England have more work to do to reduce stubbornly high inflation.
Lagarde delivered an aggressive tone yesterday, warning that inflation in the Eurozone had become entrenched in every layer of the economy. To further depress prices, she said, the central bank “will have to bring rates to a sufficiently restrictive level and keep them there for as long as necessary.”
Watch for more hard talk from the Fed today. The central bank will have to “communicate a commitment to fight inflation at all costs,” Michael Gapen, chief U.S. economist at Bank of America, wrote in an investor note this week.
“They don’t want a normal person, no normal company. They want something extraordinary. You were not born extraordinary.”
— Spencer Shulem, CEO of BuildBetter, about why he occasionally uses LSD. He says the drug boosts his creativity and focus, giving him an edge over venture capitalists looking for exceptional start-up executives to invest in.
What happened at the PGA Tour meeting
Being a PGA Tour director was never meant to be particularly controversial. But yesterday’s board meeting in Dearborn, Michigan, was tougher than most. It was the first since the PGA Tour tentatively agreed on June 6 to a merger involving the Saudi Arabian-backed LIV Golf League, a deal most executives — including the player members — knew nothing about before it was announced.
DealBook was there.
The board lay on the floor for hours on the first floor of the Henry Hotel. In attendance were Edward Herlihy van Wachtell, the chairman of the board and one of the chief negotiators for the deal; Mary Meeker of investment firm Bond; and Randall Stephenson, the former CEO of AT&T. The board’s five player representatives were also in attendance: Rory McIlroy, Patrick Cantlay, Charley Hoffman, Peter Malnati and Webb Simpson.
Also spotted: Robert Gibbs, the former White House spokesman who was recently hired to represent the PGA Tour as it stares down a mountain of criticism over the proposed deal from Washington.
The board said negotiations had entered a “new phase”. A five-page master agreement released this week revealed few details had been agreed, leading some lawyers to say the proposed deal resembled a legal settlement more than an M&A transaction. But the PGA Tour reiterated after the meeting that reaching a final agreement was “in the best interest of our players, fans, sponsors, partners and the game in general.”
Any final agreement would require board approval. Herlihy and James Dunne, an experienced dealmaker who was also involved in the talks, are expected to back the deal, and McIlroy has reluctantly given his support. But most of the others on the board have yet to reveal their hand.
Most of the meeting focused on finding a path to a deal. About three hours were spent figuring out how to resolve a final logistics, a person familiar with the discussion told DealBook. Chief among these: appreciation, as the original deal framework did not foresee the PGA Tour, LIV or DP World Tour, the leading men’s league in Europe that would also be part of a merger.
The bankers of the tour at Allen & Co. explained the process for valuing the company, including media and digital rights, along with sponsorship deals, but did not provide specific numbers.
Also discussed: how the tour will begin to bring back the golfers who have defected to LIV.
What’s next? Top executives from the PGA Tour and LIV have been invited to appear at a Senate hearing on the deal on July 11.
READING THE SPEED
Oaktree Capital, the investment giant, has appointed Robert O’Leary and Armen Panossian as co-CEOs (WSJ)
Yellow transportation company may file for bankruptcy protection amid a dispute with its union despite a $700 million bailout package from Washington’s pandemic era. (NYT)
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